Exclusive: VMware in Talks to Acquire EngineYard

UPDATED: VMware (s vmw) is back on the hunt for new startups as it looks to further raise its profile in the platform-as-a-service market. Sources tell me its latest target is EngineYard, the Ruby on Rails cloud provider that’s raised $37 million from the likes of Amazon (s amzn), Benchmark, DAG Ventures and Bay Partners. Neither VMware nor EngineYard could be reached for comment. Update: A VMware spokesperson responded to my query in email by saying, “We don’t comment on speculation or rumors.” EngineYard’s Jim Shissler, director of marketing, denied the talks and said EngineYard works closely with VMware because VMware provides the underlying software and is a strategic investor in Terremark, which hosts EngineYard’s enterprise-class platform as a service.

VMware has been buying startups such as Zimbra, SpringSource and others as it works to transition from providing a hypervisor to offering higher-value services. Earlier this year it released its VMforce platform as a service built on Salesforce.com’s (s crm) infrastructure using SpringSource’s Java-based framework. Adding a Ruby-focused platform or capability makes a lot of sense, and EngineYard has been working on a transition of its own — moving away from startups and more toward the enterprise, where VMware’s focus is.

For a closer look on how the PaaS business is evolving, (GigaOM Pro sub req’d) check out our panel dedicated to the topic at our Structure 2010 conference in two weeks. If platforms as a service don’t interest you, perhaps VMware’s CEO Paul Maritz will explain in his keynote what else his company is looking for in its acquisition spree.